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Even before the COVID-19 pandemic, restaurant operator Alex Rechichi had mixed feelings about food delivery apps.

“I have three words to describe the relationship: A necessary evil,” said Rechichi, who runs the Toronto-based gourmet burger chain The Burger’s Priest and other brands under his Crave It Restaurant Group.

Now that his restaurants have been forced to adopt takeout or delivery-only models due to social distancing, the high service fees charged by the delivery apps have put those relationships to the test.

Rechichi, whose restaurants once got 35 to 40 per cent of their business from apps such as Uber Eats and SkipTheDishes, said he’s trying to get customers to order through a proprietary app, because it gives the company more control.

“We’re an industry where our margins are very, very thin,” Rechichi said. “And at a time like this when 95 per cent of your sales are going online and your delivery partners are taking 25 per cent for the service they offer, it’s really hard to make money.”

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It’s something that restaurants across North America are grappling with as they realize that the economic arrangement with delivery providers that worked when sit-down dining was flourishing no longer make sense.

In the United States, the tensions have provoked a class-action lawsuit against delivery services Uber Eats, Grubhub, DoorDash and Postmates, with restaurant operators saying that the rates being charged were unfair.

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While none of the industry veterans who spoke to the Financial Post accused delivery companies of hiking their rates in response to COVID-19, concern about the business model was common.

“I don’t think Uber and these guys have gouged in the traditional sense,” said Andrew Oliver, chief executive at Oliver & Bonacini, which operates more than two dozen fine-dining restaurants across Canada.

“My argument would be that they were always gouging, so it’s not a pandemic-related thing. The reason it has become an issue is all the people who had never thought about using them because of the fees are now using them and saying, ‘This is crazy.’”

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My argument would be that they were always gouging, so it’s not a pandemic-related thing

Andrew Oliver, CEO, Oliver & Bonacini

Several restaurant operators who spoke to the Financial Post said that the only businesses who can really profitably use the delivery apps are so-called “ghost kitchens.”

“It’s not a restaurant, it’s just a space somewhere, where they make food, and they just put their menu up on SkipTheDishes,” said Todd Perrin, the chef behind Mallard Cottage and Waterwest Kitchen and Meats in St. John’s, NL.

“That’s a whole different business model than what we do. I think there’s a space for it, just not inside a traditional restaurant.”

Perrin said his two restaurants are entirely shut now; he considered doing delivery, but he felt as though it was a lot of work, and he might not even break even.

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“It’s not a money-making proposition,” he said. “You’re bringing in some cash flow, you’re able to keep some of your guys employed, but everybody is working twice as hard and you’re barely treading water.”

SkipTheDishes chief executive Kevin Edwards says he understands the restaurant business model, and he knows that a business can’t rely entirely on delivery apps as their sole source of revenue.

“We have commission commercial arrangements with all of our partners, and so, those are based on a restaurant looking to delivery to provide incremental revenue,” Edwards said. “But when you shutter front-of-house, it’s fair that they are going to be less sustainable, and in some cases independent restaurants are struggling.”

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Edwards said that SkipTheDishes initially cut fees 15 per cent in March, and the company has since upped that to a 25 per cent reduction for independent restaurants.

“Skip, like anyone else, we’re trying to make our way through what we’re all dealing with today,” he said.

In an emailed statement, Uber Eats said, “In order to sustainably support our restaurant partners through the evolving crisis, we’ve chosen to drive demand to local restaurants by waiving delivery fees.”

It is unclear from the statement, but it appears that the fees Uber is waiving are specifically the fees that customers see, as opposed to the percentage of the order price, which the app takes as a commission.

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Both Oliver and Rechichi said that the only possible way to make the numbers work with the delivery apps is by using them for “incremental” cash flow by selling some extra takeout orders, after the in-store business has covered fixed overhead and labour costs.

The bustling delivery business that some eateries are seeing during the pandemic might make it seem like the restaurant is still surviving, but operators said that with a big chunk of the cash flow going to delivery companies, they’re still losing money.

Restaurants also haven’t been helped much by the federal government’s wage subsidy. Because many workers rely on tips, they’ll actually be getting more money from the Canada Emergency Response Benefit than they would by staying on the restaurant’s payroll.

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Oliver said he’s deeply concerned that more than a third of all restaurants in Canada will close permanently if they don’t get government assistance, because restaurants typically have extremely high rents as they need to be in prime locations.

“If the government does not act within the next two weeks, and we get 30 or 40 per cent of restaurants quitting already, think of all that real estate value crumbling,” Oliver said.

“We’ve had it where our legs have been amputated. They’ve given us a Paw Patrol sized band-aid and said, ‘Be patient.’ Well, the industry is bleeding out.”

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